The cabinet chief warned that Hungary will slowly lose the crutch that supported last yearʼs impressive growth.
The days when European Union money could prop up the economy and drive growth will slowly come to an end, Cabinet Chief János Lázár told a March 10 conference about EU funds in Budapest.
When deciding what to do with the EU funding that is coming in now, officials will be focusing more on sustainability projects, and those that can give the most bounce to the economy, he told the audience of business people and economists. But the simple fact that there will be less EU funds to pump into the Hungarian economy means that a mild slowing in growth can be expected, Lázár said.
Last year was an exceptional one for EU funds in Hungary. The country was able to spend HUF 2 trillion, thereby helping the economy achieve 2.9% GDP growth. In the current cycle of 2014-2020, there is less EU funding than there was in the previous financing cycle of 2007-2013, Lázár said.
“The period of easy money has passed,” warned Lázár, who said he anticipates some industries will be hurt in the future, as support for agricultural and infrastructure projects could cease to exist.
Speaking at the same conference, just before Lázár, András Balatoni, Chief Analyst at ING Bank Hungary, said it will be hard for Hungary to maintain the same growth rate in the near future. He said we should expect “slower growth in the next one or two quarters as compared to 2015 and 2016, and hopefully due to EU funding, the central bank’s activities and fiscal support the economy could get back to around 3% in 2017.”
Lázár noted that things will be even harder in the 2020 funding period, when Hungary is expected to see even less EU funding.
“For now it is important to use all the sources as best we can, as we do not know what kind of funds will be available after 2020,” he said. “It is an important responsibility to keep economic development on track after available EU funds run out.”
Therefore, Lázár said, those projects that do get funded will need to pay back in jobs and development. “We are expecting real economic productivity,” the cabinet chief said.
In the last couple of years, the government gave much of the EU funding for development as grants to private firms that were building or expanding production halls. It said this kind of support was meant to help fund the private growth that would create jobs.
The government was also remarkably efficient when it came to making sure that it got its share of funding. In the 2007-2013 European Union financial cycle, Hungary was able to call down HUF 9.2 tln, 108% of the available money for funding, Lázár said. He explained that modifications made to the EU funding system allowed Hungary to apply for 8% more than it was originally allotted.
During the previous cycle a total of 70,560 projects were funded, according to Lázár. In the period of 2007-2010 HUF 904 bln was called down, while in 2013 it was HUF 1.7 tln, in 2014 HUF 1.85 tln and in 2015 more than HUF 2 tln was called down.
To give an idea of how well Hungary did at using EU money, Lázár noted that, while this country obtained more funds then were originally available, Slovakia left €1.2 billion unused, Czech Republic left €1 bln unused and Romania was only able to call down 74% of the EU funds made available for that country.
Hungarian officials are ready to match their past efficiency, and they have already made plans for spending the funds, the cabinet chief said.
“We know what we want to spend the available funds on, and the current money available is clear, but the situation coming after 2020 is still uncertain,” Lázár said.
He added that he was convinced that “some kind of funding” would be available after the current cycle, however, he believes that this will be more specific, it would be more difficult to call down and there will be no direct funding for developing the economy as Hungary has been doing thus far.